n have been following the CM Costs
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that Count series with interest, but I am still unsure as to the best method of depreciating the value of a vehicle over its life. You suggested two methods of calculating depreciation. One was the straightline method and the other a reducing method, but I believe there is another method based on percentages of the vehicle value which can be used. Could you explain this?
AThe method of depreciation you refer to
is just another means of applying a reducing figure so that the annual reduction in depreciation offsets the theoretical increase• in maintenance charges as the vehicle gets older.
To calculate depreciation on this basis if we assume the capital sum to be depreciated is £5,000, and the rate of depreciation 40 per cent per annum, the following annual depreciation figure emerges: Year 1 £5,000 —40 per cent £3,000 Year 2 £3,000 —40 per cent= £1,800 Year 3 £1,800 —40 per cent= £1,080 Year 4 £1,080 —40 per cent £648 Year 5 £648 —40 per cent= £389 Year 6 £389 —40 per cent-£233 By using this method the current writtendown value of a vehicle can be seen at a glance and if consideration is being given to the disposal of the vehicle the price required to clear the books will be known.